4797 Instructions for Form 4797

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2018

Department of the Treasury
Internal Revenue Service

Instructions for Form 4797
Sales of Business Property
(Also Involuntary Conversions and Recapture Amounts
Under Sections 179 and 280F(b)(2))

DRAFT AS OF
October 4, 2018

Section references are to the Internal Revenue
Code unless otherwise noted.

Future Developments

For the latest information about
developments related to Form 4797 and
its instructions, such as legislation
enacted after they were published, go to
IRS.gov/Form4797.

What’s New
Special rules for capital gains
invested in Qualified Opportunity
Funds. If you have a capital gain in
2018, you can invest that gain into a
Qualified Opportunity Fund and elect to
defer part or all of the gain that you
would otherwise include in income until
December 31, 2026. You also may be
able to permanently exclude gain from
the sale or exchange of an investment in
a Qualified Opportunity Fund if the
investment is held for at least 10 years.
For information about how to elect to
use these special rules, see the
Instructions for Form 8949.
Capital assets. For dispositions after
2017, certain patents, inventions,
models, or designs; secret formulas or
processes; or similar property are not
capital assets. See Section 1231
transactions, later.

General Instructions
Purpose of Form

Use Form 4797 to report:
• The sale or exchange of:
1. Real property used in your trade
or business;
2. Depreciable and amortizable
tangible property used in your trade or
business (however, see Disposition of
Depreciable Property Not Used in Trade
or Business, later);
3. Oil, gas, geothermal, or other
mineral properties; and
4. Section 126 property.
• The involuntary conversion (from
other than casualty or theft) of property
used in your trade or business and
capital assets held for more than 1 year
Oct 04, 2018

in connection with a trade or business or
a transaction entered into for profit
(however, see Disposition of
Depreciable Property Not Used in Trade
or Business, later).
• The disposition of noncapital assets
(other than inventory or property held
primarily for sale to customers in the
ordinary course of your trade or
business).
• The disposition of capital assets not
reported on Schedule D.
• The gain or loss (including any
related recapture) for partners and S
corporation shareholders from certain

section 179 property dispositions by
partnerships and S corporations.
• The computation of recapture
amounts under sections 179 and
280F(b)(2) when the business use of
section 179 or listed property decreases
to 50% or less.
• Gains or losses treated as ordinary
gains or losses, if you are a trader in
securities or commodities and made a
mark-to-market election under section
475(f).

Where To Make First Entry for Certain Items
Reported on This Form
(b)
Held 1 year
or less

(a)
Type of property
1

2

3

4
5
6
7

8

Depreciable tangible trade or business property:
a Sold or exchanged at a gain . . . . . . . . . . . .
b Sold or exchanged at a loss . . . . . . . . . . . .
Depreciable real trade or business property:
a Sold or exchanged at a gain . . . . . . . . . . .
b Sold or exchanged at a loss . . . . . . . . . . . .
Farmland held less than 10 years upon which
soil or water expenses were deducted:
a Sold at a gain . . . . . . . . . . . . . . . . . . . . .
b Sold at a loss . . . . . . . . . . . . . . . . . . . . .
Real or tangible trade or business property
which was deducted under the de minimis safe
harbor
All other farmland used in a trade or business
Disposition of cost-sharing payment property
described in section 126

(c)
Held more
than 1 year

Part II
Part II

Part III (1245)
Part I

Part II
Part II

Part III (1250)
Part I

Part II
Part II
Part II

Part III (1252)
Part I
Part II

Part II

Part I

Part II

Part III (1255)

Cattle and horses used in a trade or business
for draft, breeding, dairy, or sporting purposes:

Held less
than 24
months

Held 24
months
or more

a
b
c

Part II
Part II
Part II

Part III (1245)
Part I
Part I

Livestock other than cattle and horses used in a
trade or business for draft, breeding, dairy, or
sporting purposes:

Held less
than 12
months

Held 12
months
or more

a
b
c

Part II
Part II
Part II

Part III (1245)
Part I
Part I

Sold at a gain . . . . . . . . . . . . . . . .
Sold at a loss . . . . . . . . . . . . . . . .
Raised cattle and horses sold at a gain

Sold at a gain . . . . . . . . . . .
Sold at a loss . . . . . . . . . .
Raised livestock sold at a gain

Cat. No. 13087T

. . . . .
. . . . .
. . . . .

. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . .

Other Forms You May
Have To File

• Use Form 4684, Casualties and
Thefts, to report involuntary conversions
from casualties and thefts.
• Use Form 6252, Installment Sale
Income, to report the sale of property
under the installment method.
• Use Form 8824, Like-Kind
Exchanges, to report exchanges of
qualifying business or investment
property for property of a like kind. For
exchanges of property used in a trade
or business (and other noncapital
assets), enter the gain or (loss) from
Form 8824, if any, on Form 4797, line 5
or line 16.
• If you sold property on which you
claimed investment credit, see Form
4255, Recapture of Investment Credit,
and its instructions to find out if you
must recapture some or all of the credit.
• Use Form 8949, Sales and Other
Dispositions of Capital Assets, to report
the sale or exchange of capital assets
not reported on another form or
schedule; gains from involuntary
conversions (other than casualty or
theft) of capital assets not used in your
trade or business; and nonbusiness bad
debts. However, see Disposition of
Depreciable Property Not Used in Trade
or Business, later.
• Use the applicable Schedule D,
Capital Gains and Losses, for the return
you are filing to figure the overall gain or
loss from transactions reported on Form
8949 and to report transactions you
don’t have to report on Form 8949. See
the Instructions for Form 8949 and the
instructions for the applicable
Schedule D.

Depreciable Property and Other
Property Disposed of In the
Same Transaction
If you disposed of both depreciable
property and other property (for
example, a building and land) in the
same transaction and realized a gain,
you must allocate the amount realized
between the two types of property
based on their respective fair market
values (FMVs) to figure the part of the
gain to be recaptured as ordinary
income because of depreciation. The
disposition of each type of property is
reported separately in the appropriate
part of Form 4797 (for example, for
property held more than 1 year, report
the sale of a building in Part III and land
in Part I).

deduct the difference as a capital loss
deduction even if you don’t have
ordinary income to offset it. The yearly
limit on the amount of the capital loss
you can deduct is $3,000 ($1,500 if you
are married and file a separate return).
See the Instructions for Form 8949 and
the Instructions for Schedule D (Form
1040).

DRAFT AS OF
October 4, 2018

Additional information. See Pub.
544, Sales and Other Dispositions of
Assets. Also, see Pub. 550, Investment
Income and Expenses (Including
Capital Gains and Losses).

Special Rules
At-Risk Rules

If you report a loss on an asset used in
an activity for which you are not at risk,
in whole or in part, see the Instructions
for Form 6198, At-Risk Limitations. Also,
see Pub. 925, Passive Activity and
At-Risk Rules. Losses from passive
activities are subject first to the at-risk
rules and then to the passive activity
rules.

Disposition of Depreciable
Property Not Used in Trade or
Business

Generally, gain from the sale or
exchange of depreciable property not
used in a trade or business but held for
investment or for use in a not-for-profit
activity is capital gain. Generally, the
gain is reported on Form 8949 and
Schedule D. However, part of the gain
on the sale or exchange of the
depreciable property may have to be
recaptured as ordinary income on Form
4797. Use Part III of Form 4797 to figure
the amount of ordinary income
recapture. The recapture amount is
included on line 31 (and line 13) of Form
4797. See the Instructions for Form
4797, Part III. If the total gain for the
depreciable property is more than the
recapture amount, the excess is
reported on Form 8949. On Form 8949,
enter “From Form 4797” in column (a) of
Part I (if the transaction is short term) or
Part II (if the transaction is long term),
and skip columns (b) and (c). In column
(d), enter the excess of the total gain
over the recapture amount. Leave
columns (e) through (g) blank and
complete column (h). If you invested this
gain into a Qualified Opportunity Fund
and intend to elect the temporary
deferral of the gain, then see the
Instructions for Form 8949 and the
instructions for the applicable
Schedule D.
Generally, loss from the sale or
exchange of depreciable property not
used in a trade or business but held for
investment or for use in a not-for-profit
activity is a capital loss. Report the loss
on Form 8949 in Part I (if the transaction
is short term) or Part II (if the transaction
is long term). If your capital losses are
more than your capital gains, you can
-2-

Partial Dispositions of MACRS
Property

You may elect to recognize a partial
disposition of a Modified Accelerated
Cost Recovery System (MACRS) asset,
and report the gain, loss, or other
deduction on a timely filed, including
extensions, federal tax return for the
year of the disposition. In some cases,
however, you are required to report the
gain or loss on the partial disposition of
a MACRS asset (see Required partial
dispositions below). MACRS assets
include buildings (and their structural
components) and other tangible
depreciable property placed in service
after 1986 that is used in a trade or
business or for the production of
income.
For more information on partial
dispositions of MACRS property, see
Regulations section 1.168(i)-8(d).
Elective partial dispositions. If you
elect to recognize a partial disposition of
a MACRS asset, report the gain or loss
(if any) on Form 4797, Part I, II, or III, as
applicable, and include the words
“Partial Disposition Election” in the
description of the partially disposed
asset. See the instructions for Parts I, II,
and III. For more information on the
disposition of MACRS assets, see
Regulations section 1.168(i)-8.
Required partial dispositions.
Report the gain or loss (if any) on the
following partial dispositions of MACRS
assets on Form 4797, Part I, II, or III, as
applicable.
• Sale of a portion of a MACRS asset.
• Involuntary conversion of a portion of
a MACRS asset other than from a
casualty or theft.
• Like-kind exchange of a portion of a
MACRS asset (Form 4797, line 5 or 16).
See the instructions for Parts I, II, and
III. Also, see Other Forms You May
Have To File, earlier.

Disposition of Assets That
Constitute a Trade or Business

If you sell a group of assets that make
up a trade or business and the buyer's
bases in the assets are determined
wholly by the amount paid for the
assets, both you and the buyer

generally must allocate the total sales
price to the assets transferred. File
Form 8594, Asset Acquisition
Statement, to report the sale. See Pub.
544 for more details on the sale of
business assets.

Installment Sales

ordinary income and losses, instead of
capital gains and losses. As a result, the
lower capital gain tax rates and the
limitation on capital losses don’t apply.
• The gain or loss from each security or
commodity held in connection with your
trading business (including those
marked to market) is reported on Form
4797, Part II, line 10. See the
instructions for line 10.
• The wash sale rule does not apply to
securities or commodities held in
connection with your trading business.

depreciation for periods after May 6,
1997, you cannot exclude gain to the
extent of that depreciation. On Part I,
line 2, write “Section 121 exclusion,”
and enter the amount of the exclusion
as a (loss) in column (g).
If the property was held for 1 year or
less after you converted it to business
use, report the sale and the amount of
the exclusion, if any, in a similar manner
on Part II, line 10.
For details and exceptions including
how to figure gain on the sale of a home
used for business and the amount of the
exclusion, see section 121 and Pub.
523.

DRAFT AS OF
October 4, 2018

If you sold property at a gain and you
will receive a payment in a tax year after
the year of sale, you generally must
report the sale on the installment
method unless you elect not to do so.
Use Form 6252 to report the sale on
the installment method. Also use Form
6252 to report any payment received
during your 2018 tax year from a sale
made in an earlier year that you
reported on the installment method.
Enter gain from the installment sale on
Form 4797, line 4 or line 15, as
applicable. See the Instructions for
Form 6252.
To elect out of the installment
method, report the full amount of the
gain on a timely filed return (including
extensions). If you timely filed your tax
return without making the election, you
can still make the election by filing an
amended return within 6 months of the
due date of your return (excluding
extensions). Write “Filed pursuant to
section 301.9100-2” at the top of the
amended return.
For a detailed discussion of
installment sales, see Pub. 537,
Installment Sales.

Traders Who Made a
Mark-To-Market Election

A trader in securities or commodities
may elect under section 475(f) to use
the mark-to-market method to account
for securities or commodities held in
connection with a trading business.
Under this method of accounting, any
security or commodity held at the end of
the tax year is treated as sold (and
reacquired) at its FMV on the last
business day of that year.
Unless you are a new taxpayer, the
election must be made by the due date
(not including extensions) of the tax
return for the year prior to the year for
which the election becomes effective.
If you are a trader in securities or
commodities with a mark-to-market
election under section 475(f) in effect for
the tax year, the following special rules
apply.
• Gains and losses from all securities
or commodities held in connection with
your trading business (including those
marked to market) are treated as

For details on the mark-to-market
election for traders and how to make the
election, see section 475(f). Also see
Pub. 550.

Sale of Home Used for
Business

If you sold property that was your home
and you also used it for business, you
may need to use Form 4797 to report
the sale of the part used for business (or
the sale of the entire property if used
entirely for business). Gain or loss on
the sale of the home may be a capital
gain or loss or an ordinary gain or loss.
Any gain on the personal part of the
property is a capital gain. You cannot
deduct a loss on the personal part. Any
gain or loss on the part of the home
used for business is an ordinary gain or
loss, as applicable, reportable on Form
4797. Any gain or loss on the part
producing income for which the
underlying activity does not rise to the
level of a trade or business is a capital
gain or loss, as applicable. See
Disposition of Depreciable Property Not
Used in Trade or Business, earlier. For
more details, see Pub. 544. Also, see
Pub. 523, Selling Your Home.
Exclusion of gain on sale of home
used for business. You may be able
to exclude part or all of the gain figured
on Form 4797 if the property sold was
used for business and was also owned
and used as your principal residence
during the 5-year period ending on the
date of the sale. During that 5-year
period, you must have owned and used
the property as your personal residence
for 2 or more years. However, the
exclusion may not apply to the part of
the gain that is allocated to any period
after December 31, 2008, during which
the property was not used as your
principal residence.
If the property was held more than 1
year after you converted it to business
use, complete Part III to figure the
amount of the gain. Do not take the
exclusion into account when figuring the
gain on line 24. If line 22 includes
-3-

Involuntary Conversion of
Property

You may not have to pay tax on a gain
from an involuntary or compulsory
conversion of property. See Pub. 544
for details.

Passive Loss Limitations

If you have an overall loss from passive
activities and you report a loss on an
asset used in a passive activity, use
Form 8582, Passive Activity Loss
Limitations, or Form 8810, Corporate
Passive Activity Loss and Credit
Limitations, as applicable, to see how
much loss is allowed before entering it
on Form 4797.
You cannot claim unused passive
activity credits when you dispose of
your interest in an activity. However, if
you dispose of your entire interest in an
activity, you may elect to increase the
basis of the credit property by the
original basis reduction of the property
to the extent that the credit has not been
allowed because of the passive activity
rules. Make the election on Form
8582-CR, Passive Activity Credit
Limitations, or Form 8810, as
applicable. No basis adjustment may be
elected on a partial disposition of your
interest in an activity.

Recapture of Preproductive
Expenses

If you elect not to use the uniform
capitalization rules of section 263A, any
plant that you produce is treated as
section 1245 property. For dispositions
of plants reportable on Form 4797, enter
the recapture amount taxed as ordinary
income on Part III, line 22. See
Disposition of plants in chapter 9 of Pub.
225, Farmer's Tax Guide, for details.

Section 197(f)(9)(B)(ii) Election

If you made the election under section
197(f)(9)(B)(ii) to recognize gain on the
disposition of a section 197 intangible

and to pay a tax on that gain at the
highest tax rate, include the additional
tax on Form 1040, line 11a (or the
appropriate line of other income tax
returns). Check box 3 and enter “197”
and the tax in the space next to that
box. The additional tax is the amount
that, when added to any other income
tax on the gain, equals the gain
multiplied by the highest tax rate.

• Gain treated as unrecaptured section
1250 gain. The section 1250 gain must
be figured as if it applied to all
depreciation rather than the additional
depreciation;
• Gain attributable to real property, or
an intangible asset, which is not an
integral part of a DC Zone business;
• Gain from a related-party transaction.
See Sales and Exchanges Between
Related Persons in chapter 2 of Pub.
544; and
• Gain attributable to periods after
December 31, 2016.
See section 1400B (as in effect
before its repeal) for more details and
special rules.

• Gain treated as ordinary income
under section 1245;
• Section 1250 gain figured as if
section 1250 applied to all depreciation
rather than the additional depreciation;
• Gain attributable to real property, or
an intangible asset, that is not an
integral part of a renewal community
business;
• Gain from a related-party transaction.
See Sales and Exchanges Between
Related Persons in chapter 2 of Pub.
544; and
• Gains from periods after December
31, 2014.
See section 1400F (as in effect
before its repeal) for more details and
special rules.

DRAFT AS OF
October 4, 2018

Deferral of Gain Invested in a
Qualified Opportunity Fund

If you realized gain from an actual or
deemed sale or exchange with an
unrelated person and, during the
180-day period beginning on the date
the gain is realized, you invested any
portion of the gain in a Qualified
Opportunity Fund (QOF), then you may
be able to elect to temporarily defer
such eligible capital gain that would
otherwise be includible in the current
year’s income. If you make the election,
the eligible capital gain is included in
taxable income only to the extent, if any,
the amount of realized gain exceeds the
aggregate amount invested in a QOF
during the 180-day period. For more
information, see section 1400Z-2.

How to report. Report the gain as it
otherwise would be reported if you were
not making the election. Make the
election for the deferred amount
invested in a QOF on Form 8949. See
the Instructions for Form 8949.

Exclusion of Gain From Sale of
DC Zone Assets

If you sold or exchanged a District of
Columbia Enterprise Zone (DC Zone)
asset that you acquired after 1997 and
before 2012, and held for more than 5
years, you may be able to exclude the
amount of “qualified capital gain.” The
qualified gain is, generally, any gain
recognized in a trade or business that
you would otherwise include on Form
4797, Part I. This exclusion also applies
to an interest in, or property of, certain
businesses operating in the District of
Columbia.

DC Zone asset. A DC Zone asset is
any of the following.
• DC Zone business stock.
• DC Zone partnership interest.
• DC Zone business property.
Qualified capital gain. The qualified
capital gain is any gain recognized on
the sale or exchange of a DC Zone
asset that is a capital asset or property
used in a trade or business. It does not
include any of the following gain:
• Gain treated as ordinary income
under section 1245;

How to report. If applicable, report the
entire gain realized from the sale or
exchange as you otherwise would
without regard to the exclusion. To
report the exclusion, enter “DC Zone
Asset Exclusion” on Form 4797, line 2,
column (a), and enter as a (loss) in
column (g) the amount of the exclusion
that offsets the gain reported in Part I,
line 6.

Any unrecaptured section 1250
gain is not qualified capital gain.
CAUTION Identify the amount of gain that
is unrecaptured section 1250 gain and
report it on the Schedule D for the return
you are filing.

!

Exclusion of Gain From
Qualified Community Assets

If you sold or exchanged a qualified
community asset acquired after 2001
and before 2010, you may be able to
exclude the “qualified capital gain.” The
qualified gain is, generally, any gain
recognized in a trade or business that
you would otherwise include on Form
4797, Part I. This exclusion also applies
to an interest in, or property of, certain
renewal community businesses. See
sections 1400F(c) and (d) (as in effect
before its repeal) for special rules and
limitations.

Qualified community asset. A
qualified community asset is any of the
following.
• Qualified community stock.
• Qualified community partnership
interest.
• Qualified community business
property.
Qualified capital gain. Qualified
capital gain is any gain recognized on
the sale or exchange of a qualified
community asset that is a capital asset
or property used in a trade or business.
It does not include any of the following
gains.
-4-

How to report. If applicable, report the
entire gain realized from the sale or
exchange as you otherwise would
without regard to the exclusion. To
report the exclusion, enter “Qualified
Community Asset Exclusion” on Form
4797, line 2, column (a), and enter as a
(loss) in column (g) the amount of the
exclusion that offsets the gain reported
in Part I, line 6.

Specific Instructions
Note. To show losses, enclose figures
in (parentheses).
If you disposed of property you
acquired by inheritance from someone
who died before or after 2010, enter
“INHERITED” in column (b) instead of
the date you acquired the property. Also
report the sale or exchange that way if
you inherited the property from
someone who died in 2010 and the
executor of the decedent's estate did
not elect under section 1022 to file Form
8939.

Disposition by a
Partnership or S
Corporation of Section 179
Property
Partners and S corporation shareholders. If you received a
Schedule K-1 from a partnership or S
corporation reporting the sale,
exchange, or other disposition of
property for which a section 179
expense deduction was previously
claimed and passed through to its
partners or shareholders, you must
report your share of the transaction on
Form 4797, 4684, 6252, or 8824
(whether or not you were a partner or
shareholder at the time the section 179
deduction was claimed).

Use the worksheet, later, to figure the
amount to report on Form 4797, 4684,
6252, or 8824, and to figure any
reduction in your carryforward of the
unused section 179 expense deduction.
The partnership or S corporation must
provide the following information on
Schedule K-1 for the transaction.
• Description of the property.
• Date the property was acquired and
placed in service.
• Date of the sale or other disposition
of the property.
• Your share of the gross sales price or
amount realized. Enter this amount on
line 1 of the worksheet.
• Your share of the cost or other basis
plus the expense of sale. Enter this
amount on line 2 of the worksheet.
• Your share of the depreciation
allowed or allowable, but excluding the
section 179 expense deduction. Enter
this amount on line 3a of the worksheet.
• Your share of the section 179
expense deduction passed through for
the property and the partnership's or S
corporation's tax year(s) in which the
amount was passed through. Enter on
line 3b of the worksheet your share of
the total amount of the section 179
expense deduction passed through for
the property (even if you were not a
partner or shareholder for the tax year in
which it was passed through or you did
not deduct all or part of the section 179
expense because of the dollar or
taxable income limitations). The tax
year(s) in which the amount was passed
through are provided so you can
determine the amount of unused
carryover section 179 expense (if any)
for the property to report on line 3c.
• If the disposition is due to a casualty
or theft, a statement indicating so, and
any additional information you need to
complete Form 4684.
• If the disposition was an installment
sale made during the partnership's or S
corporation's tax year reported using the
installment method, any information you
need to complete Form 6252. The
partnership or S corporation also must
separately report your share of all
payments received for the property in
the following tax years.
• If the disposition was a disposition of
property given up in an exchange
involving like-kind property made during
the partnership's or S corporation's tax
year, any information you need to
complete Form 8824.
If you have a carryforward of unused
section 179 expense deduction that
includes section 179 expense deduction
previously passed through to you for the
disposed asset, you must reduce your

carryforward by your share of the
section 179 expense deduction shown
on Schedule K-1 (or the amount
attributable to that property included in
your carryforward amount).
Note. Partnerships and S corporations
do not report these transactions on
Form 4797, 4684, 6252, or 8824.
Instead, they provide their partners and
shareholders the information they need
to report the transactions. See the
Instructions for Form 1065 or Form
1120S for details on the information that
must be reported on Schedule K-1.

age, used in a trade or business for
draft, breeding, dairy, or sporting
purposes and held for 12 months or
more from acquisition date.
Note. Livestock does not include
poultry, chickens, turkeys, pigeons,
geese, other birds, fish, frogs, reptiles,
etc.

DRAFT AS OF
October 4, 2018
Line 1

Enter on line 1 the total gross proceeds
from:
• Sales or exchanges of real estate
reported to you for 2018 on Form(s)
1099-S (or substitute statement) that
you are including on line 2, 10, or 20;
and
• Sales of securities or commodities
reported to you for 2018 on Form(s)
1099-B (or substitute statements) that
you are including on line 10 because
you are a trader with a mark-to-market
election under section 475(f) in effect for
the tax year. See Traders Who Made a
Mark-To-Market Election, earlier, and
the instructions for line 10, later.

Part I

Use Part I to report section 1231
transactions that are not required to be
reported in Part III.

Section 1231 transactions. The
following are section 1231 transactions.
• Sales or exchanges of real or
depreciable property used in a trade or
business and held for more than 1 year.
To figure the holding period, begin
counting on the day after you received
the property and include the day you
disposed of it.
• Cutting of timber that the taxpayer
elects to treat as a sale or exchange
under section 631(a).
• Disposal of timber with a retained
economic interest that is treated as a
sale, or an outright sale of timber, under
section 631(b).
• Disposal of coal (including lignite) or
domestic iron ore with a retained
economic interest that is treated as a
sale under section 631(c).
• Sales or exchanges of cattle and
horses, regardless of age, used in a
trade or business for draft, breeding,
dairy, or sporting purposes and held for
24 months or more from acquisition
date.
• Sales or exchanges of livestock other
than cattle and horses, regardless of
-5-

• Sales or exchanges of unharvested
crops. See section 1231(b)(4).
• Involuntary conversions of trade or
business property or capital assets held
more than 1 year in connection with a
trade or business or a transaction
entered into for profit. These
conversions may result from (a) part or
total destruction, (b) theft or seizure, or
(c) requisition or condemnation
(whether threatened or carried out). If
any recognized losses were from
involuntary conversions from fire, storm,
shipwreck, or other casualty or from
theft and the losses exceed the
recognized gains from the conversions,
do not include any gains or losses from
such conversions when figuring your net
section 1231 losses.

Transactions to which section
1231 does not apply. Section 1231
transactions do not include sales or
exchanges of:
• Inventory or property held primarily
for sale to customers;
• Patents, inventions, models or
designs (whether or not patented),
secret formulas or processes,
copyrights, literary, musical, or artistic
compositions, letters or memoranda, or
similar property (a) created by your
personal efforts, (b) prepared or
produced for you (in the case of letters,
memoranda, or similar property), or (c)
received from someone who created
them or for whom they were created, as
mentioned in (a) or (b), in a way that
entitled you to the basis of the previous
owner (such as by gift); or
• U.S. government publications,
including the Congressional Record,
that you received from the government
other than by purchase at the normal
sales price or that you got from
someone who had received it in a
similar way, if your basis is determined
by reference to the previous owner's
basis.

Line 7

Partners and S corporation
shareholders receive a Schedule K-1
(Form 1065 or Form 1120S), which
includes amounts that must be reported
on Form 4797. Following the
instructions for Schedule K-1, enter any
amounts from your Schedule K-1 (Form

Worksheet for Partners and S Corporation Shareholders To
Figure Gain or Loss on Dispositions of Property for
Which a Section 179 Deduction Was Claimed

Keep for Your Records

Caution: See the worksheet instructions below before starting.
1. Gross sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Cost or other basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. a
Depreciation (excluding section 179 expense deduction) . . . . . . . . . . . 3a.
b
Section 179 expense deduction . . . . . . . . . . . . . . . . . . 3b.
c
Unused carryover of section 179 expense
deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3c.
d
Subtract line 3c from line 3b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3d.
e
Add lines 3a and 3d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3e.
4. Adjusted basis. Subtract line 3e from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Gain or loss. Subtract line 4 from line 1 (see Where To Report Amounts From Worksheet below) . . . . . . . . . . 5.

DRAFT AS OF
October 4, 2018
Worksheet Instructions

Caution: For a disposition due to casualty or theft, skip lines 1 and 5 and enter the amount from line 4 on Form 4684, line 20, and
complete the rest of Form 4684.
Lines 1, 2, 3a, and 3b. Enter these amounts from Schedule K-1 (Form 1065 or 1120S).
Line 3c. If you were unable to claim all of the section 179 expense deduction previously passed through to you for the property (if
any), enter the smaller of line 3b or the portion of your unused carryover of section 179 expense deduction attributable to the
property. Make sure you reduce your carryover of disallowed section 179 expense deduction shown on Form 4562 by the amount
on line 3c.
Where To Report Amounts From Worksheet
Generally, the information from the above worksheet is reported on the lines specified below for Form 4797, Part III. However, for a
disposition under the installment method, complete the lines shown below for Form 6252. For dispositions of property given up in an
exchange involving like-kind property, complete the lines shown below for Form 8824.
If line 5 is a gain and the property was held more than 1 year, report the disposition as follows.
• Complete Form 4797, line 19, columns (a), (b), and (c); Form 6252, lines 1 through 4; or Form 8824, Parts I and II.
• Report the amount from line 1 above on Form 4797, line 20; Form 6252, line 5; or Form 8824, line 12 or 16.
• Report the amount from line 2 above on Form 4797, line 21; or Form 6252, line 8.
• Report the amount from line 3e above on Form 4797, line 22; or Form 6252, line 9.
• Report the amount from line 4 above on Form 4797, line 23; Form 6252, line 10; or Form 8824, line 13 or 18.
• Complete the rest of the applicable form.
If line 5 is zero or a loss and the property was held more than 1 year, report the disposition as follows. Do not report a loss on
Form 6252; instead, report the disposition on the lines shown for Form 4797.
• Complete Form 4797, line 2, columns (a), (b), and (c); or Form 8824, Parts I and II.
• Report the amount from line 1 above on Form 4797, line 2, column (d); or Form 8824, line 12 or 16.
• Report the amount from line 2 above on Form 4797, line 2, column (f).
• Report the amount from line 3e above on Form 4797, line 2, column (e).
• Report the amount from line 4 above on Form 8824, line 13 or 18.
• Complete the rest of the applicable form.
If the property was held 1 year or less, report the gain or loss on the disposition as shown below. Do not report a loss on
Form 6252; instead, report the disposition on the lines shown for Form 4797.
• Complete Form 4797, line 10, columns (a), (b), and (c); Form 6252, lines 1 through 4; or Form 8824, Parts I and II.
• Report the amount from line 1 above on Form 4797, line 10, column (d); Form 6252, line 5; or Form 8824, line 12 or 16.
• Report the amount from line 2 above on Form 4797, line 10, column (f); or Form 6252, line 8.
• Report the amount from line 3e above on Form 4797, line 10, column (e); or Form 6252, line 9.
• Report the amount from line 4 above on Form 6252, line 10; or Form 8824, line 13 or 18.
• Complete the rest of the applicable form.

1120S), box 9, or Schedule K-1 (Form
1065), box 10, in Part I of Form 4797.
If the amount from line 7 is a gain and
you have nonrecaptured section 1231
losses from prior years, see the
instructions for line 8 below. If the
amount from line 7 is a gain and you did
not have nonrecaptured section 1231

losses from prior years, enter the gain
from line 7 as a long-term capital gain
on the Schedule D for the return you are
filing.

Line 8

Your nonrecaptured section 1231
losses are your net section 1231 losses
deducted during the 5 preceding tax
-6-

years that have not yet been applied
against any net section 1231 gain to
determine how much net section 1231
gain is treated as ordinary income under
this rule.
You had a net section 1231 loss if
section 1231 losses exceeded section
1231 gains. Gains are included only to

the extent taken into account in figuring
gross income. Losses are included only
to the extent taken into account in
figuring taxable income except that the
limitation on capital losses does not
apply.
Your net section 1231 gain on line 7
is treated as ordinary income to the
extent of your nonrecaptured section
1231 losses. See the example below.

Deduct the loss from a qualifying
abandonment of business or investment
property on line 10. See Abandonments
in Pub. 544 for more information.

Gain or Loss From Certain
Preferred Stock
Gain or loss recognized by any
“applicable financial institution” from the
sale or exchange of "any applicable
preferred stock" is ordinary income or
loss. An applicable financial institution
includes:
• A financial institution defined in
section 582(c)(2), and
• A depository institution holding
company defined in section 3(w)(1) of
the Federal Deposit Insurance Act.

the 8-year period that began with the tax
year that includes the date of the
disposition. See section 451(k) for more
information on making the election for
qualifying transactions.
Include the applicable portion of the
deferred gain for the current tax year on
line 10. Enter “Deferred gain under
section 451(k)” in column (a) and 1/8 of
the deferred gain in column (g).

DRAFT AS OF
October 4, 2018

Example. You had net section 1231
losses of $4,000 and $6,000 in 2013
and 2014, respectively, and net section
1231 gains of $3,000 and $2,000 in
2017 and 2018, respectively. The 2018
net section 1231 gain of $2,000 is
entered on line 7 and the nonrecaptured
net section 1231 losses of $7,000
($10,000 net section 1231 losses minus
the $3,000 that was applied against the
2018 net section 1231 gain) are entered
on line 8. The entire $2,000 net section
1231 gain on line 7 is treated as
ordinary income and is entered on
line 12 of Form 4797. For recordkeeping
purposes, the $4,000 loss from 2013 is
all recaptured ($3,000 in 2017 and
$1,000 in 2018), and you have $5,000
of section 1231 losses from 2014 left to
recapture ($6,000 minus the $1,000
recaptured this year).

Line 9

For recordkeeping purposes, if line 9 is
zero, the amount on line 7 is the amount
of net section 1231 loss recaptured in
2018. If line 9 is more than zero, you
have recaptured all of your net section
1231 losses from prior years.
If line 9 is more than zero, enter the
amount from line 8 on line 12. Enter the
gain from line 9 as a long-term capital
gain on the Schedule D for the return
you are filing.

Part II

If a transaction is not reportable in Part I
or Part III and the property is not a
capital asset reportable on Schedule D,
report the transaction in Part II.
If you received ordinary income from
a sale or other disposition of your
interest in a partnership, see Pub. 541,
Partnerships.

Line 10

Report on line 10 ordinary gains and
losses, not included on lines 11 through
16, including gains and losses from
property held 1 year or less, on this line.
If you receive ordinary income from a
sale or other disposition of property and
deducted the cost of the property under
the tangible property de minimis safe
harbor, report the income on line 10.

Also, for this purpose, “applicable
preferred stock” is preferred stock of
Federal National Mortgage Association
(Fannie Mae), or the Federal Home
Loan Mortgage Corporation (Freddie
Mac) that was:
• Held by the applicable financial
institution on September 6, 2008; or
• Sold or exchanged by the applicable
financial institution after December 31,
2007, and before September 7, 2008.

In the case of a sale or exchange of
applicable preferred stock after
September 6, 2008, by a taxpayer that
held such preferred stock on September
6, 2008, these provisions apply only
where the taxpayer was an applicable
financial institution at all times during the
period beginning on September 6, 2008,
and ending on the date of the sale or
exchange of the applicable preferred
stock. Therefore, any Fannie Mae or
Freddie Mac preferred stock held by a
taxpayer that was not an applicable
financial institution on September 6,
2008, is not applicable preferred stock
(even if such taxpayer subsequently
became an applicable financial
institution).
For guidance on preferred stock held
indirectly by applicable financial
institutions through partnerships and
subsidiaries, see Rev. Proc. 2008-64,
2008-47 I.R.B. 1195, available at
IRS.gov/irb/2008-47_IRB/ar12.html.

Deferred Gain From Qualifying
Electric Transmission Transaction
If you sold or exchanged qualifying
electric transmission property before
January 1, 2008 (before January 1,
2018, for a qualified electric utility), and
elected to defer the realized gain, the
deferred gain is recognized ratably over
-7-

Securities or Commodities Held by
a Trader Who Made a
Mark-To-Market Election

Report on line 10 all gains and losses
from sales and dispositions of securities
or commodities held in connection with
your trading business, including gains
and losses from marking to market
securities and commodities held at the
end of the tax year (see Traders Who
Made a Mark-To-Market Election,
earlier.) Attach to your tax return a
statement, using the same format as
line 10, showing the details of each
transaction. Separately show and
identify securities or commodities held
and marked to market at the end of the
year. On line 10, enter “Trader—see
attached” in column (a) and the totals
from the statement in columns (d), (f),
and (g). Also, see the instructions for
line 1, earlier.

Small Business Investment
Company Stock
Report on line 10 ordinary losses from
the sale or exchange (including
worthlessness) of stock in a small
business investment company
operating under the Small Business
Investment Act of 1958. See
section 1242.
Also attach a statement that includes
the name and address of the small
business investment company and, if
applicable, the reason the stock is
worthless and the approximate date it
became worthless.

Section 1244 (Small Business)
Stock
Individuals report ordinary losses from
the sale or exchange (including
worthlessness) of section 1244 (small
business) stock on line 10.
The maximum amount that may be
treated as an ordinary loss on Form
4797 is $50,000 ($100,000 if married
filing jointly). Special rules may limit the
amount of your ordinary loss if (a) you

received section 1244 stock in
exchange for property with a basis in
excess of its FMV or (b) your stock
basis increased because of
contributions to capital or otherwise.
See Pub. 550 for more details, including
information on what is section 1244
(small business) stock.

If the property was sold on the
installment sale basis, see the
Instructions for Form 6252 before
completing Part III. Also, if you have
both installment sales and
noninstallment sales, you may want to
use separate Forms 4797, Part III, for
the installment sales and the
noninstallment sales.

• The deduction for qualified clean-fuel
vehicle property or refueling property.
• Deductions claimed under section
190, 193, or 1253(d)(2) or (3) (as in
effect before the enactment of P.L.
103-66).
• The basis reduction for any qualified
plug-in electric or qualified electric
vehicle credit.
• The basis reduction for the
employer-provided childcare facility
credit.
• The deduction for qualified energy
efficient commercial building property
placed in service before January 1,
2018. See section 179D.
• The basis reduction for the alternative
motor vehicle credit.
• The basis reduction for the alternative
fuel vehicle refueling property credit.

DRAFT AS OF
October 4, 2018

Attach a computation of the loss from
the sale or exchange of section 1244
property. On line 10, enter “Losses on
Section 1244 (Small Business Stock),”
in column (a), and enter the allowable
loss in column (g). Report on
Schedule D losses in excess of the
maximum amount that may be treated
as an ordinary loss (and all gains) from
the sale or exchange of section 1244
stock.

Keep adequate records to distinguish
section 1244 stock from any other stock
owned in the same corporation.

Line 18a

You must complete this line if there is a
gain on Form 4797, line 3; a loss on
Form 4797, line 11; and a loss on Form
4684, line 35, column (b)(ii). Enter on
this line the smaller of the loss on Form
4797, line 11, or the loss on Form 4684,
line 35, column (b)(ii). To figure which
loss is smaller, treat both losses as
positive numbers. Enter the loss from
income-producing property on
Schedule A (Form 1040), line 16.
Identify it as from “Form 4797, line 18a.”
Do not include any loss from property
used as an employee.

Part III
Partners and shareholders

TIP reporting a disposition of

section 179 property which was
separately reported to you on
Schedule K-1 (Form 1065 or 1120S),
see Partners and S corporation
shareholders at the beginning of the
Specific Instructions.
Generally, for property held 1 year or
less, do not complete Part III; instead
use Part II. For exceptions, see the chart
Where To Make First Entry for Certain
Items Reported on This Form, earlier.
Use Part III to figure recapture of
depreciation and other items that must
be reported as ordinary income on the
disposition of certain property.
Complete lines 19 through 24 to
determine the gain on the disposition of
the property. If you have more than four
properties to report, use additional
forms. For more details on depreciation
recapture, see Pub. 544.

Note. If you sold or otherwise disposed
of property for which you elected to treat
as an expense the costs of certain real
property, special rules apply. See
section 179. For special rules for
determining gain or loss and
determining if the basis of the property
is treated as section 1245 or section
1250 property, see Pub. 544.

Line 20

The gross sales price includes money,
the FMV of other property received, and
any existing mortgage or other debt the
buyer assumes or takes the property
subject to. For casualty or theft gains,
include insurance or other
reimbursement you received or expect
to receive for each item. Include on this
line your insurance coverage, whether
or not you are submitting a claim for
reimbursement.
For section 1255 property disposed
of in a sale, exchange, or involuntary
conversion, enter the amount realized.
For section 1255 property disposed of in
any other way, enter the FMV.

Line 21

Reduce the cost or other basis of the
property by the amount of any
enhanced oil recovery credit or disabled
access credit. However, do not adjust
the cost or other basis for any of the
items taken into account on line 22.

Line 22

Complete the following steps to figure
the amount to enter on line 22.

Step 1. Add amounts such as the
following.
• Deductions allowed or allowable for
depreciation (including any special
depreciation allowance (see the
Instructions for Form 4562)),
amortization, depletion, or
preproductive expenses (see
Disposition of plants in chapter 9 of Pub.
225).
• The section 179 expense deduction.
• The commercial revitalization
deduction, for buildings placed in
service before 2010.
• The downward basis adjustment
under section 50(c) (or the
corresponding provision of prior law).
-8-

Step 2. From the Step 1 total, subtract
amounts such as the following.
• Any investment credit recapture
amount if the basis of the property was
reduced in the tax year the property was
placed in service under section 50(c)(1)
(or the corresponding provision of prior
law). See section 50(c)(2) (or the
corresponding provision of prior law).
• Any section 179 or 280F(b)(2)
recapture amount included in gross
income in a prior tax year because the
business use of the property decreased
to 50% or less.
• Any qualified clean-fuel vehicle
property or refueling property deduction
you were required to recapture.
• Any basis increase for qualified
plug-in electric or qualified electric
vehicle credit recapture.
• Any basis increase for recapture of
the employer-provided childcare facility
credit.
• Any basis increase for recapture of
the alternative motor vehicle credit.
• Any basis increase for recapture of
the alternative fuel vehicle refueling
property credit.
• Any qualified disaster expense
recapture.
For more information on amounts
recaptured as depreciation allowed or
allowable, see chapter 3 of Pub. 544.
You may have to include
depreciation allowed or allowable on
another asset (and refigure the basis
amount for line 21) if you use its
adjusted basis in determining the
adjusted basis of the property described
on line 19. An example is property
acquired by a trade-in. See Regulations
section 1.1245-2(a)(4). Also, see
Like-Kind Exchanges under Nontaxable
Exchanges in chapter 1 of Pub. 544.

Line 23

For section 1255 property, enter the
adjusted basis of the section 126
property disposed of.

Line 25
Section 1245 property. Section 1245
property is property that is depreciable
(or amortizable under section 185
(repealed), 197, or 1253(d)(2) or (3) (as
in effect before the enactment of P.L.
103-66)) and is one of the following.
• Personal property.
• Elevators and escalators placed in
service before 1987.
• Real property (other than property
described under tangible real property
below) adjusted for the following.
1. Amortization of certified pollution
control facilities.
2. The section 179 expense
deduction.
3. Deduction for clean-fuel vehicles
and certain refueling property.
4. Deduction for capital costs
incurred in complying with
Environmental Protection Agency sulfur
regulations.
5. Deduction for certain qualified
refinery property.
6. Deduction for qualified energy
efficient commercial building property
placed in service before January 1,
2018.
7. Deduction for election to expense
qualified advanced mine safety
equipment property.
8. Amortization of railroad grading
and tunnel bores if in effect before the
repeal by the Revenue Reconciliation
Act of 1990. (Repealed by P.L. 99-514,
Tax Reform Act of 1986, section
242(a).)
9. Certain expenditures for childcare
facilities if in effect before the repeal by
P.L. 101-508, section 11801 (a)(13).
(Repealed by P.L. 101-508, Omnibus
Budget Reconciliation Act of 1990,
section 11801(a)(13), except with
regards to deductions made prior to
November 5,1990.)
10. Expenditures to remove
architectural and transportation barriers
to the handicapped and elderly.
11. Deduction for qualified tertiary
injectant expenses.
12. Certain reforestation
expenditures.
• Tangible real property (except
buildings and their structural
components) if it is used in any of the
following ways.

1. As an integral part of
manufacturing, production, or extraction
or of furnishing transportation,
communications, or certain public utility
services.
2. As a research facility in these
activities.
3. For the bulk storage of fungible
commodities (including commodities in
a liquid or gaseous state) used in these
activities.
• A single purpose agricultural or
horticultural structure (as defined in
section 168(i)(13)).
• A storage facility (not including a
building or its structural components)
used in connection with the distribution
of petroleum or any primary petroleum
product.
• Any railroad grading or tunnel bore
(as defined in section 168(e)(4)).

which you elected to claim a
commercial revitalization deduction).
ACRS property. Real property
depreciable under ACRS (pre-1987
rules) is subject to recapture under
section 1245, except for the following,
which are treated as section 1250
property.
• 15-, 18-, or 19-year real property and
low-income housing that is residential
rental property.
• 15-, 18-, or 19-year real property and
low-income housing that is used mostly
outside the United States.
• 15-, 18-, or 19-year real property and
low-income housing for which a straight
line election was made.
• Low-income rental housing described
in clause (i), (ii), (iii), or (iv) of section
1250(a)(1)(B). See the instructions for
line 26b.

Exceptions and limits. Special rules
apply to the following.
• Gifts.
• Transfers at death.
• Certain tax-free transactions.
• Certain like-kind exchanges,
involuntary conversions, etc.
• Property distributed by a partnership
to a partner.
• Transfers to tax-exempt
organizations where the property will be
used in an unrelated business.
• Timber property.
• Dispositions of amortizable section
197 intangibles.
For more information, see section
1245(b). Also, see Pub. 544.

Exceptions and limits. See section
1250(d) for exceptions and limits
involving the following.
• Gifts.
• Transfers at death.
• Certain tax-free transactions.
• Certain like-kind exchanges,
involuntary conversions, etc.
• Property distributed by a partnership
to a partner.
• Disposition of qualified low-income
housing.
• Transfers of property to tax-exempt
organizations if the property will be used
in an unrelated business.
• Dispositions of property as a result of
foreclosure proceedings.

Line 26

Special rules. Special rules apply in
the following cases.
• For additional depreciation
attributable to rehabilitation
expenditures, see section 1250(b)(4).
• If substantial improvements have
been made, see section 1250(f).

DRAFT AS OF
October 4, 2018

Section 1250 property. Section 1250
property is depreciable real property
(other than section 1245 property).
Generally, section 1250 recapture
applies if you used an accelerated
depreciation method or you claimed any
special depreciation allowance, or the
commercial revitalization deduction.
Section 1250 recapture does not
apply to dispositions of the following
MACRS property placed in service after
1986 (or after July 31, 1986, if elected).
You are not required to calculate
additional depreciation for these
properties on line 26.
• 27.5-year (or 40-year, if elected)
residential rental property (except for
27.5-year qualified New York Liberty
Zone property acquired after September
10, 2001).
• 22-, 31.5-, or 39-year (or 40-year, if
elected) nonresidential real property
(except for 39-year qualified New York
Liberty Zone property acquired after
September 10, 2001, and property for
-9-

Line 26a
Enter the additional depreciation for the
period after 1975. Additional
depreciation is the excess of actual
depreciation (including any special
depreciation allowance, or commercial
revitalization deduction) over
depreciation figured using the straight
line method. For this purpose, do not
reduce the basis under section 50(c)(1)
(or the corresponding provision of prior
law) to figure straight line depreciation.
Also, if you claimed a commercial
revitalization deduction, figure straight
line depreciation using the property's
applicable recovery period under
section 168.

Line 26b
Generally, use 100% as the percentage
for this line. However, for low-income
rental housing described in clause (i),
(ii), (iii), or (iv) of section 1250(a)(1)(B),
see that section for the percentage to
use.

If you had a gain on the disposition of
oil, gas, or geothermal property placed
in service before 1987, treat all or part of
the gain as ordinary income. Include on
line 22 of Form 4797 any depletion
allowed (or allowable) in determining
the adjusted basis of the property.

payments excluded from income. Use
100% minus 10% for each year, or part
of a year, that the property was held
over 10 years after receipt of the
excluded payments. Use zero if 20
years or more.

Line 29b

If any part of the gain shown on
line 24 is treated as ordinary income
under sections 1231 through 1254 (for
example, section 1252), enter the
smaller of (a) line 24 reduced by the part
of the gain treated as ordinary income
under the other provision or (b) line 29a.

DRAFT AS OF
October 4, 2018

Line 26d

Enter the additional depreciation after
1969 and before 1976. If straight line
depreciation exceeds the actual
depreciation for the period after 1975,
reduce line 26d by the excess. Do not
enter less than zero on line 26d.

Line 26f

Line 28

The amount the corporation treats as
ordinary income under section 291 is
20% of the excess, if any, of the amount
that would be treated as ordinary
income if such property were section
1245 property, over the amount treated
as ordinary income under section 1250.
If the corporation used the straight line
method of depreciation, the ordinary
income under section 291 is 20% of the
amount figured under section 1245.

Line 27

Partnerships skip this section. Partners
must enter on the applicable lines of
Part III amounts subject to section 1252
according to instructions from the
partnership.
You may have ordinary income on
the disposition of certain farmland held
more than 1 year but less than 10 years.

See section 1252 to determine if
there is ordinary income on the
disposition of certain farmland for which
deductions were allowed under section
175 (relating to soil and water
conservation).
Gain from disposition of certain
farmland is subject to ordinary income
rules under section 1252 before the
application of section 1231 (Part I).
Enter 100% of line 27a on line 27b
except as follows.
• 80% if the farmland was disposed of
within the 6th year after it was acquired.
• 60% if disposed of within the 7th
year.
• 40% if disposed of within the 8th
year.
• 20% if disposed of within the 9th
year.
Skip line 27 if you dispose of such
farmland during the 10th or later year
after you acquired it.

If you had a gain on the disposition of
oil, gas, geothermal, or other mineral
properties (section 1254 property)
placed in service after 1986, you must
recapture all expenses that were
deducted as intangible drilling costs,
depletion, mine exploration costs, and
development costs under sections 263,
616, and 617.

Exception. Property placed in service
after 1986 and acquired under a written
contract entered into before September
26, 1985, and binding at all times
thereafter is treated as placed in service
before 1987.
Note. A corporation that is an
integrated oil company completes
line 28a by treating amounts amortized
under section 291(b)(2) as deductions
under section 263(c).

Line 28a
If the property was placed in service
before 1987, enter the total expenses
after 1975 that:
• Were deducted by the taxpayer or
any other person as intangible drilling
and development costs under section
263(c) (except previously expensed
mining costs that were included in
income upon reaching the producing
state), and
• Would have been reflected in the
adjusted basis of the property if they
had not been deducted.
If the property was placed in service
after 1986, enter the total expenses
that:
• Were deducted under section 263,
616, or 617 by the taxpayer or any other
person; and
• But for such deduction, would have
been included in the basis of the
property; plus
• The deduction under section 611 that
reduced the adjusted basis of such
property.
If you disposed of a portion of section
1254 property or an undivided interest in
it, see section 1254(a)(2).

Line 29a

Use 100% if the property is disposed of
less than 10 years after receipt of
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Part IV

Column (a)

If you took a section 179 expense
deduction for property placed in service
after 1986 (other than listed property, as
defined in section 280F(d)(4)) and the
business use of the property decreased
to 50% or less this year, complete
column (a) of lines 33 through 35 to
figure the recapture amount.

Column (b)

If you have listed property that you
placed in service in a prior year and the
business use decreased to 50% or less
this year, figure the amount to be
recaptured under section 280F(b)(2).
Complete column (b), lines 33 through
35. See Pub. 463, Travel,
Entertainment, Gift, and Car Expenses,
for more details on recapture of excess
depreciation.
Note. If you have more than one
property subject to the recapture rules,
figure the recapture amounts separately
for each property. Show these
calculations on a separate statement
and attach it to your tax return.

Line 33

In column (a), enter the section 179
expense deduction you claimed when
the property was placed in service. In
column (b), enter the depreciation
allowable on the property in prior tax
years (plus any section 179 expense
deduction you claimed when the
property was placed in service).

Line 34

In column (a), enter the depreciation
that would have been allowable on the
section 179 property from the year the
property was placed in service through
(and including) the current year. See
Pub. 946, How To Depreciate Property.
In column (b), enter the depreciation
that would have been allowable if the
property had not been used more than

50% in a qualified business. Figure the
depreciation from the year it was placed
in service up to (but not including) the
current year. See Pub. 463 and Pub.
946.

you took the deduction. For example, if
you took the deduction on Schedule C
(Form 1040), report the recapture
amount as other income on Schedule C
(Form 1040).

the recapture amount attributable to
your trade or business is subject to
self-employment tax. Allocate the
amount on line 35 to the appropriate
schedules.

Line 35

Note. If you filed Schedule C or F
(Form 1040) and the property was used
in both your trade or business and for
the production of income, the portion of

Be sure to increase your basis in the
property by the recapture amount.

Subtract line 34 from line 33 and enter
the recapture amount as “other income”
on the same form or schedule on which

DRAFT AS OF
October 4, 2018

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Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the
United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to
allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless
the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long
as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return
information are confidential, as required by section 6103.

DRAFT AS OF
October 4, 2018

The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden for
individual taxpayers filing this form is approved under OMB control number 1545-0074 and is included in the estimates shown
in the instructions for their individual income tax return. The estimated burden for all other taxpayers who file this form is shown
below.
Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Learning about the law or the form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preparing and sending the form to the IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35 hr., 23 min.
8 hr., 20 min.
9 hr., 17 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we
would be happy to hear from you. See the instructions for the tax return with which this form is filed.

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